Ad Exchanges - Bringing Sanity to Display

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The online advertising system consists of three primary constituents: advertisers wishing to market their products; publishers intent on selling their inventory; and consumers visiting the publisher’s sites for content.

Transcript of Ad Exchanges - Bringing Sanity to Display

  • 1.March 2011Ad ExchangesBringingsanity todisplay

2. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYLead ContributorsEdward MontesChief Executive OfficerAdnetikedward.montes@adnetik.comNathan WoodmanChief Operating OfficerAdnetiknathan.woodman@adnetik.comMark EganGlobal New BusinessHavas Digital Globalmark.egan@havasdigital.comSunil SharmaDirector of TradingAdnetiksunil.sharma@adnetik.comMelissa ScottiMarketing ManagerAdnetikmelissa.scotti@adnetik.com 2011 Havas Digital and Adnetik 1 3. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYCONTENTSOverview.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3A Very Brief History of Display.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4What Is an Ad Exchange?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5How the DSPs Operate on the Exchanges.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6How Adnetik Operates on the Exchanges - AIM.. . . . . . . . . . . . . . . . . . . . . . . 9Algorithms - a quick word.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Ad Exchanges - Providing Full Valuefor Publishers. Yes, really.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Beyond Pricing 101.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Creating the Right Market Structure:Solving for Publisher Yield and AdvertiserEffectiveness Simultaneously.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Nexus.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Conclusion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Resources and suggested reading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 .Case study: Grocer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Contact details.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2011 Havas Digital and Adnetik 2 4. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYOVERVIEWThe online advertising system consists ofthree primary constituents: advertisers wishingto market their products; publishers intent onselling their inventory; and consumers visitingthe publishers sites for content.But, currently the system is flawed. The advertisers arent reaching their intended audi-ence; the publishers arent getting fair market value; and the consumers are swampedwith ad clutter. Ad exchanges, properly managed, change that.Exchanges bring transparent audience and content targeting for advertisers, naturalprice optimization for publishers, and less clutter and ad irrelevancy for consumers.For now its important to understand that 90 million unique users a day are served adspurchased on exchanges, and the numbers are growing month to month.1 The benefitsto the entire environment and the expanding reach are too significant to ignore. Tradedmedia is here to stay and it will impact every media planner and every publisher whethertheyre ready or not.This white paper will examine the basics of ad exchanges and Demand Side Platforms(DSPs). It will delve into Adnetiks approach to comprehensive data managementand its role in driving the absolute best bidding strategy. It will consider the implica-tions of exchanges from the advertisers and the publishers perspectives. Finally, it willexplore how Adnetik and the exchanges provide a model where everybody gains.1. Marketing & Media Ecosystem 2010 Survey and Booz & Company analysis. 2011 Havas Digital and Adnetik 3 5. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYA Very Brief History of DisplayAd networks purchase audience.Agencies purchase media.Why Thats FlawedGenerally, publishers tier inventory in two levels. They sell primary inventory directlythrough a traditional sales force and guarantee placement. Secondary inventory is notguaranteed; instead it is auctioned on the exchanges, DSPs or networks. While thepublishers understandably welcome the higher revenues and guaranteed sales of theprimary tier they appreciate the chance to fill unsold ads through the secondary tier.Until now this model has gone largely unquestioned. Exchanges now expose a poten-tially dangerous pricing coincidence between the two tiers, which this paper will explorein depth later.Media has been the historical proxy for reaching a target audience the accepted butimperfect strategy. The ad environment hasnt been structured to realize the impor-tance of both the neighborhood and audience in different combinations. To compoundthe discrepancy, while advertisers want efficiency, publishers want higher CPMs fromthe secondary channel. These two desires have been difficult to reconcile because themajority of display ads in the secondary channel were served on opaque, previouslyimpossible-to-value inventory. Fixing Advertising reckons, since 2003, online display adspend has nearly doubled while CTR has dropped by a factor of three.Something isnt working. This is not unexpected given that as a result of the rapid increasein Internet usage, publishers have ratcheted up inventory creation. The problem is thatmuch of this extra inventory ends up being bought and sold blindly within the secondarychannel. The buyer does not know the specific page on which the ad will be served. Thishas created an oversupply of opaque ads, ensuring the secondary inventory is not opti-mally valued. Exchanges that offer inventory transparently correct this.Exchanges that offer inventorytransparently correct this. 2011 Havas Digital and Adnetik 4 6. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYWhat Is an Ad Exchange?How does it work? A user visits a webpage, the pages publisher sends an ad request totheir inventory management system. If there is no buyer in the direct sales queue, thenthe ad impression is presented to a secondary channel an ad network, a Supply SideOptimizer or an ad exchange.In each of these cases it is very likely that the ad request is eventually presented in anauction format that uses Real-Time Bidding (RTB). In an RTB auction the seller releasesa set of bid-request data that includes a consumers profile to all qualifying bidders andthen waits for a response. While the RTB auction waits the competing buy sides get towork. They ingest all of the known data points in the bid request and then use variousdecisioning processes to bid what they think will return value to the advertiser and winthe auction. All the bids are then collected, the highest bid wins the impression, the adis served to a page, and the page is rendered.This sounds logical and, given the reach and depth of technology today, isnt toosurprising, unless you consider that the speed at which all of these steps happen isbetween 10 and 100 milliseconds. Thats 10 times faster than an eye blink, or about asfast as one flap of a hummingbirds wing.Example or Retargeting, Behavioral Targeting and Optimization:6. Ad is delivered 5. Adnetik to publisher sitewins bidin milliseconds1. Uservisits asite2. Publishersends ad3. Bid4. Bidding request to therequest takes place exchanges Exchanges connected to Adnetik 2011 Havas Digital and Adnetik5 7. Havas DigitalAD EXCHANGES: BRINGING SANITY TO DISPLAYHow the DSPs Operateon the ExchangesDSPs are, simply put, a piece of bidding technology or ad servers with optimiza-tion and inventory links. They allow audience buying via RTB across multiple sourcesof inventory. DSPs arent very good at two, key functions: 1) distinguishing and valuingthe quality of ad inventory; and 2) leveraging data that is distinct to the advertiser. Thisinability to value inventory based on all key parameters causes inventory prices to dropbelow real value.Premium publishers are discouraged from making more inventory available transparently.The subsequent shortage curtails the brand advertisers reaping the potential benefits ofRTB at scale. DSPs are good at leveraging third party data. They just lack the ability tofind segments that are unique to each specific advertiser. The reason: third party data isavailable to all other buyers in the marketplace.This means that the buyers are bidding on the same users over and over again. Sincethe DSPs are unable to find any uniqueness in these segments advertisers expect to paybottom-of-the-barrel prices. When prices drop too low, premium publishers pull out,leaving premium brands with nowhere to turn.This murkiness makes display resemble a used car market, in which a buyer doesnt knowwhether a car is a lemon until after purchase. Since buyers are conditioned to believe thechances of getting a lemon are high, they pay lower prices than they would if they knewthat a specific car was sound.DSPs arent very good at two, key functions:1) distinguishing and valuing the qualityof ad inventory; and 2) leveraging data thatis distinct to the advertiser.This discourages owners of quality cars from selling, because the market price is belowtheir reservation value for the car. This repeats until more and more good cars are pulledout of the market, and the prices drop lower and lower, in a negative cycle of inventorywithdrawal and price diminishment.While the online display advertising market has a different economic structure (namelythat unsold inventory has no reservation value to publishers) much of the analogy holdstrue. Brand sensitive advertisers, who would pay higher CPMs for more valuable inventoryif they could assess its value, view blind inv